Will Deregulation and Strengthening Formal/State Institutions Solve the Problem of Post-Soviet Informality?

After 20 years of post-Soviet transformation informality is still on rise. Informality, initially seen as a transitional phenomenon, did not wade away as a result of marketization process. Since the end of 1990s the new-institutionalists suggested that simplifying overregulated economies of Post-Soviet states, and improving quality of government are the key solutions to reduce importance of informality in the region. In this paper I examine the validity of new-institutionalist solution with help of Polanyi’s theory on market society and I ground the analysis in existing ethnographic case studies of informality. Informal economy not only seems deeply embedded in social and cultural context of respective societies, but it transforms and adjusts primarily in response to the marketization process, thus can be seen as an attempt of re-embedding the economy into society. I argue that new-institutionalist solution is at best insufficient and at worst misleading in explaining informality in post-Soviet states.